A "Ponzi scheme" is a fraudulent investment scheme in which return on investment is given by the money collected from the subsequent investors. Earlier this was called a Bubble, later named after a Boston bank clerk Charles Ponzi, who ran a multi million dollar scam in the year 1920.

Charles Ponzi collected more than $10 million from thousands of people by selling promissory notes that claimed to repay principle plus 50% profit after 45 days. This scheme initially ran well but later resulted in collapse of Boston bank and lots of customers lost their hard earned money.

In Ponzi scheme the returns to the investors are given from the money collected from new investors. Initial investors somehow get good return and start spreading good word of mouth about the company. The Ponzi schemes companies will survive well as long as they get good number of new investors.

Once the flow of new investors slow down, then they will not have any money to pay to the existing investors. This is where the problem starts and Ponzi scheme companies will start packing their bags.

Ponzi schemes are modified form of pyramid sales scheme. These kinds of schemes are banned in some countries and the law enforcement is very strict on companies operating Ponzi schemes.

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